Charles Davidson’s 33 stock picks with a market cap of at least $1 billion from Wexford Capital’s equity portfolio beat the market by almost 17 percentage points during the first three months of 2015, as they posted an average return of 18% compared to the S&P 500 ETF (SPY) gain of 0.9% during the same period.
Why is this interesting? Well, tracking the activity of funds such as Wexford Capital is vital for small investors who try to seek out new promising investment opportunities. However, simply imitating the moves made by billionaires and hedge funds does not guarantee great returns because most of their top picks are in large- and mega-cap stocks. These equities usually don’t beat the market by a large margin, as they are more efficiently priced. Hence, here at Insider Monkey, we concentrate our efforts on gathering and analyzing information regarding the small-cap picks of more than 700 hedge funds. Our research has shown that the most popular small-cap stocks among hedge funds beat the market by 95 basis points per month between 1999 and 2012. There aren’t a lot of investment strategies that can beat the market and ensure a solid alpha, so we have started imitating a portfolio of 15 most popular small cap picks since the end of August 2012. These stocks have returned more than 137% since then through the end of March 2015 and outperformed the S&P 500 ETF (SPY)’s 54% appreciation by over 82 percentage points (read more details here).
Now let’s look at some of Davidson’s picks. The largest position in Wexford’s equity portfolio is represented by Diamondback Energy Inc (NASDAQ:FANG), whose stock gained 28.5% during the January-March period. As of the end of last year, Wexford disclosed a position of 4.3 million shares, valued at $257 million, which represents almost half of the fund’s equity portfolio. Since then, Wexford has systematically reduced its exposure to Diamondback Energy Inc (NASDAQ:FANG), which is an oil and natural gas company, and a recent filing showed the remaining ownership was down to 928,000 shares. At this level, Wexford is still one of the top shareholders of the Diamondback Energy Inc (NASDAQ:FANG), the list also including Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and Rob Citrone’s Discovery Capital Management, among others.
Another winner in Wexford’s portfolio is Cedar Fair, L.P. (NYSE:FUN). Davidson cut his fund’s position in the amusement park operator by 50% during the fourth quarter of 2014 to 86,000 shares, valued at $4.1 million, which represented a 0.79% position in its equity portfolio. The largest shareholder of Cedar Fair, L.P. (NYSE:FUN) among the funds we track is MSDC Management, run by Mark Lisker, Glenn Furhman, and John Phelan, with 3.8 million shares held as of the end of 2014. Jim Simon’s Renaissance Technologies and Remy Trafelet’s Trafelet Capital are other funds that have Cedar Fair, L.P. (NYSE:FUN) in their equity portfolios, according to the latest round of 13F filings. The company’s stock gained 21.6% in the first quarter of 2015.
At the end of 2014, Wexford held nearly 119,000 shares of Alibaba Group Holding Ltd (NYSE:BABA), valued at $12.3 million and representing 2.38% of the fund’s equity portfolio. Alibaba Group Holding Ltd (NYSE:BABA)’s investors had a rough first quarter as the stock of the e-commerce giant dropped by 20% in 2015. Rob Citrone’s Discovery Capital Management, George Soros‘ Soros Fund Management and Dan Loeb’s Third Point are a few of the other funds that hold large long positions in the company. Investors continue to feel nervous about Alibaba Group Holding Ltd (NYSE:BABA) as the lockup period for the stock expired last month. Also the company has come under criticism from a Chinese government agency regarding fake goods being sold on its platforms.
Moreover, during the last quarter of 2014, Davidson raised the fund’s position in Baidu Inc (ADR) (NASDAQ:BIDU) by more than 50% to 44,300 shares valued at $10.1 million, equal to 1.94% of the equity portfolio. Baidu Inc (ADR) (NASDAQ:BIDU)’s stock lost 8.5% during the first quarter of 2015, but investors remain bullish on the stock. Again, Rob Citrone of Discovery Capital Management is one of the investors with a significant long stake in Baidu Inc (ADR) (NASDAQ:BIDU), alongside billionaires Stephen Mandel, Andreas Halvorsen, Daniel S. Och, and Ken Fisher.
Davidson made an interesting new pick in the last quarter of 2014 by adding 17,000 shares of Amazon.com, Inc. (NASDAQ:AMZN), with the $5.3 million stake amassing 1.02% of the fund’s equity portfolio. The stock of Amazon.com, Inc. (NASDAQ:AMZN) gained 19.8% in the first quarter of 2015. Among the funds we track, Landsdowne Partners, has the largest stake, followed by Ken Fisher’s Fisher Asset Management. On the other hand, Julian Robertson of Tiger Management is short Amazon.com, Inc. (NASDAQ:AMZN), holding ‘Put’ options underlying 160,000 shares of the e-commerce company.
Disclosure: none
